Key Performance Indicators for Distribution

1 Every company that handles a physical product is, in fact, a wholesale distributor and needs the information and tools to effectively monitor and manage the Distribution side of the business. This applies to manufacturers, wholesalers and logistics specialists, in every industry segment from retail to e-commerce; from health and beauty to electronics; from consumer goods to industrial equipment. All rely on measurements to monitor business activities and Performance , document successes and challenges, and help direct management decision-making. Of course, we measure a number of parameters simply to comply with mandatory accounting and reporting requirements, but smart management will incorporate those measurements into valuable intelligence that helps run the business more effectively and more designed measurements can be used to improve Performance and results in wholesale Distribution and logistics. Thousands of measurements have been defined over the year including many common measurements that virtually every distributor can use things like profit and loss, cash flow, inventory turns, and the like.

2 In addition, there are a number of measurements that are particularly important for Distribution and some that apply to specific situations and needs within the Distribution can be too much of a good thing, however. Information overload is a real problem when the important gems of intelligence are buried in masses of data. Decision-makers can easily miss the critical early warning while spending entirely too much of their valuable time buried in Performance Indicators for DistributionWhitepaper | August 2018 Copyright Acumatica 2018 Page 1 of 10 Among this wide array of possible measurements, each industry has a relatively small number of measures that are particularly important for monitoring the overall health of the business. Commonly called Key Performance Indicators (KPIs), these measurements are often gathered together into an executive dashboard display with graphics that provide an at-a-glance picture to help executives quickly zero in on opportunities or dashboards offer drill-down for analysis of the details and can be adapted to provide key measurements to individual departments or functions within the organization, focused on the specific measurements that are important in their individual span of Distribution management software, sometimes called back office, ERP (Enterprise Requirements Planning) or DRP ( Distribution Requirements Planning) systems, offer such an Executive Information System with a variety of pre-defined KPIs which the various users within the company can pull together and tweak to fit their specific are in what might be called a golden age of business intelligence and KPIs.

3 While the proliferation of connected sensors and smart devices, commonly referred to as the Industrial Internet of Things (IIoT), provides unprecedented visibility and control, it also multiples the information overload problem. Fortunately, technology is also presenting solutions to that problem in the form of powerful yet user-friendly analytics and data visualization tools that are, in effect, extensions or enhancements to the Business Intelligence / Executive Information Systems Page 2 of 10 Key Performance Indicators for DistributionKPIs are a natural on mobile devices to stay on top of the business while in the ve just discussed. And all of this data, analytics, and business intelligence is made practical and functional by the cloud because only cloud deployment offers the connectivity, integration, security, scalability and capacity necessary to harness all of this data and make the intelligence accessible wherever it s needed, whenever it s needed. Types of KPIsWhen we think of measurements and KPIs, we are most likely thinking about what can be called historical measurements summaries and analyses of events and data.

4 KPIs compile this data into usable forms that target the specific interest of the viewer, the functional area of the business and the needs of that specific industry and KPIs are financial, as finance is the common language of general business management in Distribution and all other industries. Common financial KPIs in every industry monitor sales, costs, margins, cash flow, and asset utilization. But many more KPIs are operational measurements that managers and executives use to focus in on specific activities and interests relative to transportation schedules, inventory, on-time delivery, backorders, customer service and more. All of these kinds of KPIs can be classified as historical measurements since they focus on analysis of data from activities that have already occurred. We can speculate and try to project how things will play out in the future, and we do that of course, but that is not built into the structure of the KPIs can be set up with alerts and warnings that monitor and detect exceptions, calling attention to issues through graphic characteristics like traffic lights (green = all okay; yellow = an indicator that something is not quite optimum; red = cause for concern) or push alert messages sent via email or KPIs use what can be thought of as leading Indicators to project Performance expectations into the future.

5 Management can use these projections to steer decisions and actions aimed at avoiding undesirable outcomes or enhancing desirable results. Predictive KPIs for Distribution may use economic Indicators , demographic trends, or specific industry Indicators like housing starts ( indicator of future demand for plumbing fixtures, windows, carpeting, furniture, etc.) or health trends (future demand for medications or supplies), for example. Page 3 of 10 Key Performance Indicators for DistributionDistribution Flow Dashboard It can be hard to find problems without an overall picture. However, you can show your processes and KPIs on a dashboard. Operational Distribution KPIs can be tailored to track overall business status and Performance as well as specific areas of operations. Each node of the Distribution network can be monitored individually or in combinations across multiple factors. You can look at factors like inventory, on-time shipments, profitability, etc. for a single warehouse or leg of the supply chain or other groupings or categories.

6 Page 4 of 10 Key Performance Indicators for DistributionKPIs for DistributionAs mentioned above, a number of basic KPIs measure financial Performance and apply to all kinds of businesses sales and margin, return on equity, cash flow, and the like. Operational KPIs that are focused on Distribution may include common Indicators that everybody already watches like the Inventory Turnover Ratio as well as others that focus more on specific areas of Distribution Turnover RatioThis display shows inventory turns for two different groups of items low turnover items and high turnover items. This snapshot shows the current status in the familiar ratio format as well as some key Indicators that a purchasing manager might want to watch like open POs and purchasing trends. These core metrics are extremely relevant, and each user can create their own view. Page 5 of 10 Key Performance Indicators for DistributionOn Time Shipping RatioThis example compares on-time shipping Performance for custom orders at three different warehouses over a span of several years.

7 While it is informative to see how the different warehouses do compared to each other, it is interesting and disturbing to see that all three warehouses are showing a marked decrease in on-time shipments for the most recent two years. Custom orders are a challenge for any business, and they can either strengthen or weaken customer relationships Was there a policy change in this case? A supplier cost cutting or inventory reduction initiative that took effect between 2016 and 1017? This basic display quickly eliminates warehouse specific concerns and leads the analyst toward system-wide concerns that can be researched through drill-downs from this starting point. Page 6 of 10 Key Performance Indicators for DistributionProfitability by ItemSadly, not all customers are equally profitable to serve. Nor are all items, markets or channels equally profitable. Savvy distributors are well-advised to periodically review the relative profitability of customers, markets, channels and products as they formulate sales and Distribution plans and budgets to optimize overall business plans and strategies.

8 This example of Sales and Profitability by Item Class and Item illustrates the power of KPIs to sort and summarize masses of data to provide insights you can use to better understand your business. Page 7 of 10 Key Performance Indicators for DistributionGetting Started with KPIsYour Executive Information System will come with a selection of pre-defined KPIs right out of the box , as they say, and that s not a bad place to start. But consider these pre-defined KPIs to be training wheels that are helpful in letting you find your balance but are not intended for long-term use. Familiarize yourself with how those KPIs work, how to manage the alerts and warnings, and how to change them to make them more relevant and more useful in your soon as you are comfortable, start to identify new KPIs that focus on the major functions of your business. The goal is to replace the training wheels with high- Performance tires that are just right for you whether they are racing slicks, mud and snow tires, those nubby mountain bike tires, or efficient highway companies getting started with KPIs will become excited by the new insights and visibility and keep defining new ways to look at the business.

9 That is a good thing, of course, but often leads to a proliferation of KPIs that can quickly become again, too much of a good thing. Best practice is to have a relatively small number of high-impact KPIs (for an individual user) no more than 8 or 10 aimed at the critical factors for that business, department, project, or area of responsibility. A flexible Business Intelligence system will support drill-down for easy analysis and the easy creation of new ad-hoc measurements for those times when an unusual situation or new idea mandate a different development and use must be done with the involvement and cooperation of the ultimate users of the KPIs never a secret project that presents the finished product to the unprepared users as a done deal. The users must understand the system and the measurements and tailor them to their specific needs. This is the only way to build a personal connection ownership in the KPIs that is required for them to be truly sure that the KPIs are more than just window dressing.

10 They must drive decisions and actions. If they are believed, trusted, and relevant, appropriate decisions and actions will follow. Be sure that incentives line up with measurements; people respond to the way they are measured only when incentives are properly aligned. Page 8 of 10 Key Performance Indicators for DistributionDefine a small number of high-impact KPIs (for an individual user) no more than 8 or 10 aimed at the critical factors for that department or project. Page 9 of 10 Key Performance Indicators for DistributionSystematizing the KPI ProcessUse your initial experience to refine and expand your KPIs. In fact, regular KPI maintenance should be a part of your overall management strategy. Your business continually changes. Certainly, customer preferences and markets change. The advance of technology is having an impact on every business, and static measurement systems inevitably become less relevant and useful if not good news is that today s KPI dashboards are truly flexible, adaptable, and user-driven.